Thirty years ago, the formula was simple. Go to college, get a good job, and invest a portion of each paycheck into the stock market. By the time retirement approached, you would have a suitable nest egg built up—plenty to retire on and enjoy a suitable lifestyle.
But things have changed. No longer can Americans trust Wall Street to act responsibly. In fact, investing into the stock market looks more like gambling than it does investing. As MoneyNews.com reports:
Stock market participants have turned more into traders than investors, and that’s not a good thing, says John Bogle, founder of Vanguard Group.
“The stock market is a giant distraction from the business of investing,” he tells The Wall Street Journal. “People look at investing more or less as trading stocks or mutual funds or God forbid ETFs [exchange-traded funds], and that has nothing to do with investing.”
The explosive increase in the frequency of trading illustrates a trend toward speculation. U.S. stocks’ annual turnover has surged to 250 percent in 2011 from 15 percent 60 years earlier, when Bogle began his investment career.
That frenzy of trading doesn’t get investors anywhere, he says. After transaction costs, advisory fees, sales loads, and administrative costs, they aren’t making much money.
Individuals should invest for the long term, mainly buying and holding index funds, he says. Bogle has no problem with the idea of ETFs, but doesn’t approve of narrowly-focused ones that are used largely for speculation.
Interestingly enough, some individuals are turning away from both speculation and investment in stocks, fleeing to bonds instead.
“People don’t trust the market anymore,” Manhattan College financial historian Charles Geisst tells The Associated Press. Individuals will likely shun stocks for a generation or more amid a “crisis of confidence” similar to the one that emerged from the 1929 market crash, he says.
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